Canada’s Arctic push: Left out in the cold?

Canadian Arctic: left out in the cold?

Next week: Part II: The great global rush for the Arctic

The five hotels of the Northwest Territories town of Norman Wells (population: 800) saw more than their fair share of hard hats last year.

“You could not get a room there for six months last winter,” said David Ramsay, Northwest Territories’ minister of transportation industry, tourism and investment. “Grocery stores saw a 100% increase in sales; it was unprecedented economic activity for that period of time — we are going to see even more this coming winter.”

Norman Wells is not alone in witnessing this bonanza. Towns and communities across the vast Arctic landscape are waking up to the riches that lie buried beneath, as oil executives scope for prospects and Arctic governments take another ‘strategic’ look at the region’s hydrocarbon and mineral riches.

The area shared by Canada, Denmark (Greenland), Finland, Iceland, Norway, Russia, Sweden and the United States offers an estimated 46 trillion cubic metres of undiscovered global natural gas, or 30% of the global total. In addition, it holds 90 billion barrels of oil — or 13% of the estimated global total of undiscovered oil, according to a 2008 U.S. Geological Survey.

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While the Arctic’s resource potential has been known for decades, the North Pole has historically presented a daunting logistical challenge.

Until now.

In what may be described as an environmentalist’s worst nightmare, global warming and melting ice in the Arctic are rewarding oil companies with access to its thawing oil, gas and mineral deposits through greater shipping access. But that’s just part of the equation.

“Climate change has reduced the barrier to entry — it is definitely an enabling factor,” says Charles Emmerson, who wrote The Future History of the Arctic and is a senior research fellow at London-based Chatham House. He believes the entire Arctic area could see investments of more than $100-billion over the next decade, primarily in oil and gas, mining and shipping. “Other key drivers include improved technology. Secondly, the cost of producing the fields may be less than before, and more importantly, the price for oil is right — not so much for gas.”

Big Oil is also running out of places to drill. With state-owned enterprises shutting off oil majors in much of the Middle East and Latin America, the Arctic presents itself as a meltingly tempting prospect.

But Canada may have to wait a little while longer, as oil majors focus on other opportunities. Moscow, Oslo and Washington already have Arctic projects underway and have drawn up far more advanced plans to exploit the region, potentially leaving Ottawa behind in the global (sled) race for Arctic resources.

“When I look at Canadian Arctic energy exploration, in a sense I see a litany of missed opportunities in the past,” says Mr. Emmerson, who argues that mineral mining offers a better medium-term prospect in the Canadian North than hydrocarbons. “But that’s not necessarily such a bad thing. There are all kinds of environmental consequences of drilling for oil and gas. Canadian Arctic is one of the most remote parts of the Arctic. So if something were to go wrong, it would be incredibly hard to deal with.”

Of course, Ottawa already has enough energy environmental concerns to deal with in the Alberta oil sands, and may not have the political appetite to take on environmentalists who are ramping up their global campaign against Arctic development.

Which puts N.W.T. and Nunavut in a bind as the federal government controls sale of land and resources in the two Arctic territories. The premiers of the Yukon, N.W.T. and Nunavut met this month and pushed for greater say in the country energy’s policy and on the intergovernmental Arctic Council — an association of coastal states and other interested parties that periodically discuss security, environment emergency response and development.

Mr. Ramsay hopes the N.W.T. government will wrap up devolution negotiations with Ottawa by 2014 and fast-track its energy plans.

By that time natural gas prices may have rebounded from their decade low, making N.W.T.’s centrepiece $16-billion Mackenzie Gas Project feasible. The pipeline, which was stuck in Canada’s regulatory quagmire for nine years, has now been shelved due to poor economic feasibility.

The Mackenzie Gas project is not the only one up N.W.T.’s sleeves, with a total of 81 trillion cubic feet of natural gas and 7 billion barrels of oil “waiting to be taken,” according to the minister.

Husky Energy Inc. is building a 36-kilometre all-weather road between Norman Wells and Tulita, while Chevron Corp. is planning seismic exploration in the area this year. The government also recently sold two parcels north of Norman Wells, generating $92-million in work commitment. Overall, the industry has committed close to $630-million of exploration over the next four to five years.

But for now, the gas remains buried.

With lower Canada and the United States awash in oil and shale gas, the idea of laying a gas pipeline through some of the underdeveloped Arctic plains may not be appealing, especially at $2 per British thermal unit of gas.

Nunavut, which is estimated to hold a quarter of Canada’s conventional oil reserves, is much further behind the N.W.T. in its devolution discussions with Ottawa. But negotiations have finally begun, said Peter Taptuna, Nunavut’s minister of economic development and transportation, who has noted rising interest in lands along the southern reaches of the Sverdrup Basin, estimated to hold 500 million barrels of oil and 27 tcf of gas. “In the next few years we may see renewed exploration occurring there,” Mr. Taptuna said.

“When I look at Canadian Arctic energy exploration, I see a litany of missed opportunities in the past.”

Promising exploratory drilling in West Greenland waters has also led to considerable interest in the Canadian side of Baffin Bay. The federal government has begun research and the area could see a ‘call for nominations’ within a few years, Mr. Taptuna says.

In the eastern Arctic, offshore of Baffin Island, estimates place the oil potential in the range of 10 billion to 30 billion barrels. Farther south, toward the Labrador Sea, there is an estimated two tcf to four tcf of gas reserves.

Most of it may not see the light of the long Arctic days anytime soon.

“The government has made great noises about the desire for Canada to become an energy superpower, and the Arctic might be a part of that,” say Chatham’s Emmerson. “But the truth is, all across the Arctic there are big numbers, there are lots of words ad rather less than investment and action – this disconnect is particularly acute in Canada.”